This paper presents Haiti's Sixth Review under the Extended Credit Facility and request for Waiver of Performance Criterion, and Augmentation of Access. Manufacturing activity would be hit the most, as the largest enterprises, including the important export textile sector, have been located in the Port-au-Prince area. The destruction of government and private buildings is also estimated to result in a sharp drop in government services, commerce, and tourism. Agriculture, the main growth driver, would be affected owing to widespread damages to the production systems in and around the earthquake area.

I. Background

1. On January 12, 2010, Haiti was struck by an exceptionally powerful earthquake, which caused unprecedented damages and casualties. The epicenter of the 7.0 magnitude earthquake was located near the capital city, Port-au-Prince, where a third of the country’s population and most of the state and economic infrastructure are located (Box 1).

Box 1.Earthquake Impact

The earthquake has largely affected Port-au-Prince and nearby cities, affecting about 3 million people or a third of Haiti’s population. The extent of destruction of buildings is compounded by the fact that Port-au-Prince has many densely packed neighborhoods with inferior construction standards. The number of casualties is estimated to be in the tens of thousands. The UN estimates that about one million people are in need of shelter, and this figure could rise. The affected population has either been injured, or has lost access to basic necessities such as food, water, health care, and shelter, in addition to jobs and education. Local hospitals were damaged or destroyed, and most of the schools in Port-au-Prince have collapsed. The UN and international humanitarian community located in the capital also suffered heavy losses. Due to the high concentration of the displaced population in Port-au-Prince, many are leaving the city to rural areas, or other urban centers in search of food and water, which will place more pressure on these areas.

There are fears the security situation may deteriorate rapidly, particularly if the humanitarian needs of the population are not met quickly. There have been reports of shootings, looting of shops, and small riots mostly at food distribution points. Nonetheless, the overall security situation has been fairly calm, helped by the presence of 9,000 UN troops and police, and the arrival of U.S. troops.

The economic infrastructure in and around the capital city was destroyed. The UN estimates that damage to agricultural production systems in and around the capital has been widespread. Several bank headquarters were destroyed. The sea port of Port-au-Prince became non operational. The airport was damaged but is open and receiving aid, though a lack of fuel, transport, communications and handling capacity are creating bottlenecks. Severe damages to infrastructure, including roads, bridges, water systems, and electrical and communications systems are affecting the immediate relief effort and will constrain economic activity over a longer period.

The government’s ability to function was seriously impaired, further constraining the aid response. Several ministries and the tax and customs collection offices have been destroyed; the presidential palace, parliament, the prime minister’s office and supreme court were seriously damaged; and many civil servants have been killed. The central bank sustained some damage, but has been able to restore a basic manual payments system.

2. This disaster represents a major setback for Haiti, following several years of progress in maintaining macroeconomic stability, resuming growth, and implementing essential reforms. Over the past three years economic growth averaged 2½ percent per annum, improving the dismal growth performance of earlier years. Such progress was achieved despite a series of adverse external shocks, episodes of political instability and social unrest, and volatile external support which jeopardized macroeconomic stability.

3. Haiti is the poorest country in the Western Hemisphere and ranks in the bottom quartile of the United Nations Development Program (UNDP) Human Development Index. Over half the population lives on less than a dollar a day and 72 percent on less than two dollars. Poverty contributes to environmental degradation which, in turn, has increased its vulnerability to natural disasters (Text table 1).

The fiscal deficit (excluding grants and externally financed projects) was contained at 4.4 percent of GDP, as spending remained subdued, in part due to delays in budget support disbursements. At the same time, dynamic exports, low import prices and resilient remittances helped reduce the external current account deficit to 3.2 percent of GDP, from 4.5 percent in FY 2008. Reserve coverage rose to 3.7 months of imports in September, following the SDR allocation (Figures 1-3, Tables 1-4).

Sources: Ministry of Economy and Finance; Bank of the Republic of Haiti; Fund staff estimates; and World Bank. Includes HIPC/MDRI relief beginning in 2010.

1/GDP ratios are calculated using nominal program figures for 2009 (numerator) and actual GDP (denominator).

2/In 2008 it reflects accumulation of Petrocaribe-related resources; in 2009, it reflects the use of Petrocaribe-related resources accumulated in 2008.

3/Coverage has been modified since Country Report No. 09/77. Includes external public sector debt, domestic debt of the central government, but excludes BRH bonds issued for monetary purposes. Reflects HIPC/MDRI debt reduction in

4/Includes HIPC/MDRI relief beginning in 2010.

5/Excluding commercial bank forex deposits, letters of credit, guarantees, and earmarked project accounts. In 2010, NIR jumps as the program definition of NIR changed with the SDR allocation no longer netted out as a liability. NIR at end-2009 under the new definition is US$608.2 million.

6/As of August 28, 2009, also includes the (general and special) SDR holdings of SDR 64.8 million.

Sources: Ministry of Economy and Finance; Bank of the Republic of Haiti; Fund staff estimates; and World Bank. Includes HIPC/MDRI relief beginning in 2010.

1/GDP ratios are calculated using nominal program figures for 2009 (numerator) and actual GDP (denominator).

2/In 2008 it reflects accumulation of Petrocaribe-related resources; in 2009, it reflects the use of Petrocaribe-related resources accumulated in 2008.

3/Coverage has been modified since Country Report No. 09/77. Includes external public sector debt, domestic debt of the central government, but excludes BRH bonds issued for monetary purposes. Reflects HIPC/MDRI debt reduction in

4/Includes HIPC/MDRI relief beginning in 2010.

5/Excluding commercial bank forex deposits, letters of credit, guarantees, and earmarked project accounts. In 2010, NIR jumps as the program definition of NIR changed with the SDR allocation no longer netted out as a liability. NIR at end-2009 under the new definition is US$608.2 million.

6/As of August 28, 2009, also includes the (general and special) SDR holdings of SDR 64.8 million.

Table 2a.Haiti: Central Government Operations(Fiscal year ending September 30; in millions of gourdes)

1/Excluding commercial bank forex deposits, letters of credit, guarantees, earmarked project accounts and U.S.dollar-denominated bank reserves. In 2010, NIR jumps as the program definition of NIR changed with the SDR allocation no longer netted out as a liability. NIR at end-2009 under the new definition is US$608.2 million.

1/Excluding commercial bank forex deposits, letters of credit, guarantees, earmarked project accounts and U.S.dollar-denominated bank reserves. In 2010, NIR jumps as the program definition of NIR changed with the SDR allocation no longer netted out as a liability. NIR at end-2009 under the new definition is US$608.2 million.

Sources: Fund staff computations based on data from the Bank of the Republic of Haiti.

1/Data for all years converted from gourdes.

2/Net credit equal to gross loans less non performing loans.

3/The prudential requirement is 12 percent.

4/Defined as the difference between average lending rate and average fixed deposit rate in the banking system.

5/Liquid assets include cash and central bank bonds.

Sources: Fund staff computations based on data from the Bank of the Republic of Haiti.

1/Data for all years converted from gourdes.

2/Net credit equal to gross loans less non performing loans.

3/The prudential requirement is 12 percent.

4/Defined as the difference between average lending rate and average fixed deposit rate in the banking system.

5/Liquid assets include cash and central bank bonds.

5. The positive performance continued during the first quarter of FY 2010 (October-December 2009).

In November, 12-month inflation rose to minus 0.8 percent (from minus 4.7 in September), owing to rising world commodity prices and incipient pressures from increases in the minimum wage, electricity, and customs tariffs. Political developments in October-November caused some temporary pressures on the gourde which prompted the central bank to sell foreign exchange (US$11.8 million in net terms); as a result, NIR declined by US$16 million during the quarter.

The end-December fiscal deficit was lower than anticipated in the budget. A strong revenue performance (with the exception of petroleum taxes) and lower spending on wages and investment resulted in a small overall surplus.

III. Impact of the Earthquake and Proposed Augmentation

6. Staff’s very preliminary estimates suggest that GDP could decline by at least 13 percentage points to - 10 percent in FY 2010 as a result of the earthquake.1 This estimate is comparable to the loss of GDP suffered by other countries following major natural disasters (Text Table 2). Pre-earthquake projections for 2010 pointed to positive growth of about 3.6 percent and annual inflation of 8 percent. It is too early to present estimates of the total damage caused by the earthquake, but it is likely to be much larger than that of the 2008 hurricanes, which caused losses in the order of US$900 million (15 percent of GDP). The above GDP projection takes into account the following assessment:

First quarter growth (October-December) is estimated to have been in line with the pre-earthquake annual projection of about 3.6 percent output growth.

The largest drop of GDP is expected to occur in the second quarter (January-March 2010). Manufacturing activity would be hit the most, as the largest enterprises, including the important export textile sector, were located in the Port-au-Prince area. The destruction of government and private buildings is also estimated to result in a sharp drop in government services, commerce, and tourism. Agriculture, the main growth driver, would be affected due to widespread damages to the production systems in and around the earthquake area, in addition to disruptions to the distribution networks.

In the second half of the fiscal year, some gradual recovery would take place as a result of the reconstruction effort. The strength of the recovery would depend importantly on the speed of disbursement of foreign aid.

On a very preliminary basis also, inflation is projected to rise significantly, perhaps to about 10-20 percent, as a result of severe shortages and a sharp initial depreciation of the gourde.

7. The fiscal balance is projected to deteriorate very substantially. About 85 of total revenues are collected in the capital area, where most of the country’s largest enterprises are located. In addition to staff losses among government officials, revenue administration infrastructure has been destroyed or seriously damaged, including buildings and computer systems, which will further hamper revenue collection. Reconstruction needs will lead to substantial increases in government spending, and actual spending will depend importantly on the availability of external aid. Very preliminary staff projections suggest that the overall deficit for FY 2010 could rise to about 5.8 percent of GDP. This scenario also assumes a fairly conservative level of new financing, which, given amounts already committed is likely to reach higher levels. However, spending needs are equally likely to rise in a commensurate manner based on more precise estimates of the damages and reconstruction needs. Projections assume that most of the budget financing needs would be covered by grants.

8. The impact of the earthquake on the external current account is expected to be significant. Destruction of the production and trade infrastructure (factories, port, roads) could lead to a large decline in exports (all but one textile plants are located in Port-au-Prince, and textile exports represent 90 percent of total exports), while reconstruction-related imports will likely increase. Remittances could increase significantly from FY 2009 as the diaspora responds to the emergency, provided transfers and payments systems can be restored promptly. Nonetheless, the external current account deficit (excluding grants) could reach almost 20 percent of GDP owing to a sharp widening in the trade balance.

9. To help cover the projected balance of payments gap FY 2010, the authorities are requesting a program augmentation of SDR 65.52 million (equivalent to 80 percent of quota). External project and program financing could increase substantially (see below). The remaining financing gap for the year as a whole, after the augmentation from the Fund, could nonetheless reach about US$100 million. The sixth review and augmentation purchases would bring total Fund disbursements to 137 percent of quota, above the normal annual access limit of 100 percent of quota under the new framework for concessional lending to low-income countries, which became effective on January 7, 2010 (Table 6). Exceptional access is justified in light of the very large balance of payments needs that result from the earthquake, the authorities’ commitment to implement strong policies to address the impact of the earthquake in consultation with the Fund and the international community (as indicated in the letter of intent), and Haiti’s capacity to repay the Fund (see below). Fund financing would serve to limit the decline in reserves due to the surge in import needs, which is expected to be covered only in part by other sources of foreign financing, and the drastic loss in export production capacity. Maintaining a prudent level of reserves is critical not only in light of uncertainties concerning the trade balance and its financing, but also to provide scope to meet temporary increases in private sector demand for foreign exchange without severe market disruptions.

Observance of performance criteria for September 2009 and completion of the sixth review under the ECF arrangement. Includes the seventh disbursement of the ECF of SDR 7,610,000 and an additional access of 80% of quota or SDR 65,520,000 for post earthquake emergency.

1Other than the generally applicable conditions for the Extended Credit Facility (ECF).

2An extension of the program beyond its expiration date (November 19, 2009) was approved until May 31, 2010.

1Other than the generally applicable conditions for the Extended Credit Facility (ECF).

2An extension of the program beyond its expiration date (November 19, 2009) was approved until May 31, 2010.

10. The proposed augmentation would complement budget support, project financing, and humanitarian assistance already committed by other stakeholders (Box 2). Contributions announced to this date (January 20, 2010) amount to over US$1.2 billion, of which US$632 million would be earmarked for recovery. However, it remains unclear how much of the committed funds represent additional resources, and what share would be allocated as budget support. The authorities also have at their disposal about US$150 million in accumulated PetroCaribe financing, which they intend to use for the relief and reconstruction effort. Finally, staff’s balance of payments projections assume the disbursement of US$144 million in budget support grants that had been committed before the earthquake.

11. Haiti has a good track record of timely servicing its obligations to the Fund. Although debt service to the Fund is projected to peak at about 5 percent of domestic revenues and 5.9 exports of goods and services, respectively, in 2016, it should remain manageable through 2020 (Table 7).

Table 7.Haiti Indicators of Capacity to Repay the Fund, 2008-2020(In fiscal year ending September 30)

1/Assumes disbursements of SDR 7.61 million in January 2010 and SDR 65.52 million augmentation under current ECF arrangement.

2/Net of HIPC assistance.

3/Obligations take into account the interest rate grace period and new interest rates which came into effect January 7, 2010.

Box 2.Haiti: Donor Response to the Earthquake

The United Nations has issued a flash appeal amounting to US$562 million, half of which in food aid. The appeal is intended for emergency humanitarian assistance over the next six months. Priority needs are food, medical supplies, shelter, and security.

The international community response has been strong, with almost US$1.2 billion already committed. The United Nations will coordinate a more comprehensive post-disaster needs assessment and hold a donor conference in Montreal, scheduled on January 25. Immediate pledges for humanitarian assistance already exceed US$540 million and another US$632 million was pledged to cover economic recovery needs.

2/Figures are estimates and unlikely to capture all contributions made.

3/Funding needs as estimated by UN Flash Appeal

Source: United Nations

1/As of January 15, 2010

2/Figures are estimates and unlikely to capture all contributions made.

3/Funding needs as estimated by UN Flash Appeal

12. The updated joint Bank-Fund debt sustainability analysis (DSA) indicates that the PetroCaribe resources received in FY 2009, as well as the economic repercussions of the earthquake, will adversely affect the debt trajectory. As in the previous DSA, Haiti remains at high risk of debt distress (Country Report No. 09/288). Given the emergency situation, the LIC DSA presented in June 2009 at the time of the HIPC completion point was updated to incorporate: (i) a worsened macroeconomic outlook post-earthquake; (ii) a lower discount rate of 4 percent that, all things equal, raises the present value of debt; (iii) new debt to Venezuela under the PetroCaribe agreement of approximately US$295 million (that was previously treated as a private liability);2 and (iv) the Fund’s augmentation. Based on these revisions, the external debt-to-exports ratio would exceed the 100 percent ceiling between 2010 and 2025. Stress tests also show that public and external debt remains vulnerable to shocks, most importantly to a combined shock to growth, exports and non-debt creating flows. Together these shocks could push the NPV of debt-to-exports ratios up to 180 percent, and keep those ratios above the threshold throughout the projection period. The authorities remain committed to seeking foreign financing on highly concessional terms, continue to strengthen debt management, and have agreed to consult with Fund staff on all external financing issues.

13. The proposed Fund financing, in and of itself, should not be regarded as increasing Haiti’s debt vulnerability. Fund financing, including the augmentation, would imply a somewhat higher level of gross debt. However, the Fund’s support is a critical element of the broader international efforts to limit the damage resulting from the earthquake, which will set a foundation for a subsequent economic recovery. Accordingly, these efforts are vital for medium-term economic growth, fiscal revenue, exports, and thus for debt sustainability. While data limitations do not allow for meaningful scenario analysis at this stage, the counterfactual to Fund support would be a scenario with a more prolonged downturn and higher risk of debt distress.

14. The main priority, following the initial phase of emergency rescue and relief, would be to assist the authorities in re-establishing a working government and preparing a plan geared to economic recovery and reconstruction. The Fund, in close coordination with other international economic agencies and bilateral donors, stands ready to assist the authorities with the immediate task of reestablishing a functional government (Box 3). Based on the results of the forthcoming assessment of damages to economic and state infrastructure, there will be a need for a coordinated economic plan that would prioritize key economic infrastructure and activities that need to be restored (e.g. port and key roads to allow for international trade, internal distribution, communications, etc).

Box 3.Haiti: Immediate Government Needs in the Area of Economic Management

The authorities, in consultation with IMF staff and other partners, are stepping up efforts to restore their capacity to conduct fiscal and monetary policy with a view to address the emergency and support reconstruction and economic recovery.

On the fiscal side, the authorities have already taken significant steps to restore public financial management (PFM) systems and procedures with the full support of technical assistance partners. Despite damages to the buildings, the main servers supporting the information and payments systems seem to be unaffected. As a result, the authorities have established temporary technical units that would assure minimum government services, and prepared a first assessment of immediate needs. The technical units are in urgent need of computers, office and communication equipment, as well as generators. Technical assistance partners are working on a joint proposal to support the authorities’ efforts in the PFM area. Priority areas include: basic payroll for government employees, basic treasury functions, basic audit service and expenditure monitoring, procurement functions for major purchases, IT services, and revenue administration. Fund staff stands ready to support efforts on cash planning and the revision of the FY 2010 budget. In the medium term, technical assistance would mostly deal with strengthening budget preparation and execution, particularly of reconstruction expenditures.

The payments system is broadly functioning and banks are expected to reopen soon in Port-au-Prince, although a lack of security, cash distribution, and damages to branches and communication systems remain a concern. The central bank building suffered some damage but is still standing and functional. The extent of physical damage to bank branches is not yet known. The communication infrastructure was badly damaged, including the landline and fiber optic cable. Remittances stopped when the earthquake struck, but have restarted at operational locations. There are significant difficulties in delivering cash to bank branches and money transfer houses, which, for the time being, appear to have enough cash to function. Initially, daily drawings from banks will be limited to US$2,500 per person. The central bank is also preparing a list of institutions that should receive emergency liquidity. The portfolios of banks, and particularly of microfinance institutions, are expected to deteriorate significantly, especially as the latter do not have insurance on their loans. Fund staff will propose to the authorities to conduct a short assessment to better understand immediate needs and priorities. Assistance with payments systems, deposit protection, liquidity management and control of inflation would be available.

IV. Performance Under the ECF Arrangement

15. Program performance through end-December 2009 was broadly satisfactory, although the zero ceiling on contracting non-concessional external debt was breached.

All quantitative performance criteria for end-September were met, although budget support fell short by US$50 million, and 90 percent of disbursements occurred during the last week of the fiscal year. Temporarily higher central bank financing was reflected in slightly higher base money growth relative to the indicative target.

In the last quarter of 2009 the authorities contracted a non-concessional sovereign loan of US$33 million with the Development Bank of Venezuela (BANDES), to rehabilitate the Cap Haitian airport. The authorities regarded this loan as essential to promote tourism in the north of the country. However, the grant element of this loan (30.2 percent element) is below the required concessionality levels (35 percent). Prior to the earthquake, the authorities had initiated discussions with the IDB on a grant to raise the concessionality element of this project and reiterated their commitment to seek financing on highly concessional terms. Staff supports the authorities’ request for a waiver on the continuous performance criterion on contracting of non-concessional debt, in view of the remedial actions taken. Staff will continue to closely monitor Haiti’s debt dynamics to ensure that future financing takes primarily the form of grants and highly concessional lending (Table 8).

There was satisfactory overall progress toward meeting structural conditionality. Two structural benchmarks were met on time, notably the implementation of an electricity tariff structure aimed at gradual cost recovery, and two benchmarks were met with delay. Satisfactory progress was being made on the remaining measures: full operationalization of the debt unit at the Ministry of Finance awaited recommendations from recent IMF technical assistance; the central bank recapitalization plan was moving ahead, as part of a more ambitious project to establish a domestic T-bill market; and the banking law was awaiting Senate approval (Table 9).

1/It includes non-budgetary autonomous organizations, local governments and public entities. It will be measured as the change, from September 2008, in créances nettes sur le secteur public (i.e, net credit to the non financial public sector) minus the change in créances nettes sur l’état (i.e. net credit to the central government), according to table 10R of the BRH.

2/It includes a reduction of government deposits in commercial banks, that were originated in Petrocaribe-related disbursements during FY2008. As of end-FY08, the balance of these deposits amounted to US$ 150 million. The program includes a zero ceiling on commercial banks’ gross credit to the central government, on a continuous basis. The disaccumulation of deposits mainly finances hurricane-related reconstruction spending.

3/For program monitoring purposes, NDA is defined as monetary base minus Program NIR in gourde terms. Program exchange rate of G41 per US$.

4/On a continuous basis.

5/Excludes guarantees granted to the electricity sector in the form of credit/guarantee letters.

1/It includes non-budgetary autonomous organizations, local governments and public entities. It will be measured as the change, from September 2008, in créances nettes sur le secteur public (i.e, net credit to the non financial public sector) minus the change in créances nettes sur l’état (i.e. net credit to the central government), according to table 10R of the BRH.

2/It includes a reduction of government deposits in commercial banks, that were originated in Petrocaribe-related disbursements during FY2008. As of end-FY08, the balance of these deposits amounted to US$ 150 million. The program includes a zero ceiling on commercial banks’ gross credit to the central government, on a continuous basis. The disaccumulation of deposits mainly finances hurricane-related reconstruction spending.

3/For program monitoring purposes, NDA is defined as monetary base minus Program NIR in gourde terms. Program exchange rate of G41 per US$.

4/On a continuous basis.

5/Excludes guarantees granted to the electricity sector in the form of credit/guarantee letters.

Quarterly during the arrangement period, starting on March 31, 2009 and until all off-budget emergency spending is executed

Met with delay

Limit to 10 percent nonwage current spending through current accounts.

Quarterly (evaluated at end-March and end-September 2009)

Met

Legislative passage of new banking law.

End-September 2009

Not met

Implement first stage of BRH recapitalization plan.

End-September 2009

Not met

Set up and train debt management unit in MEF—both to use centralized external debt database, but also to manage domestic Treasury debt in context of BRH recapitalization.

End-September 2009

Not met

Legislative passage of customs code.

End-September 2009

Met with delay

Publish and implement a new electricity tariff structure that would increase and maintain electricity prices at cost-recovery levels.

End-September 2009

Met

V. Staff Appraisal

16. The January 2010 earthquake struck Haiti at a time when its economy had been weathering the global crisis relatively well. During FY 2009, economic growth was almost 3 percent, the highest in the Caribbean region, while annual inflation was negative. The fiscal and the current account deficits remained contained. Remittances showed remarkable resilience, supporting domestic demand. The limited integration of the Haitian financial sector in global markets largely shielded it from the impact of the global financial crisis.

17. The damages and losses caused by the earthquake, which struck near the Haitian capital and other major cities, are unprecedented, both in human and economic terms. Casualties could reach 200,000 people. About 3 million people have been severely affected by the earthquake and are in need of water, medicine, food, shelter and security. The international community is responding promptly to the situation in Haiti, with total pledges for assistance already reaching US$1.2 billion, of which about US$600 million for recovery. It is however essential that the humanitarian and non-humanitarian relief pledged be timely delivered and coordinated, and that they be a sustained commitment to help rebuild Haiti over the medium-term.

18. The earthquake’s disastrous impact on economic institutions may have undone many of the achievements of recent years. Performance under the ECF-supported arrangement has been broadly satisfactory. The authorities had maintained macroeconomic stability under difficult circumstances, and implemented essential structural reforms. As a result of these efforts, Haiti had received US$1.2 billion in HIPC and MDRI debt relief in June 2009. The impact of the earthquake on revenue collections and financial infrastructure is expected to be significant. Critical human capital has been lost, together with physical and administrative organization.

19. A concerted international effort will be needed over the coming weeks and months to assist with the economic reconstruction and recovery. The Fund is fully committed to participate in these efforts with financial and technical support, within its areas of expertise and in close coordination with other development partners.

20. The proposed augmentation of access under the program would assist Haiti with immediate balance-of-payments needs. It would help maintain an adequate reserves cushion in the face of very large import needs for the reconstruction, and complement ongoing efforts by the international community.

21. Staff supports the conclusion of the sixth review and waiver of the missed performance criterion, as well as the authorities’ request for an augmentation under the Extended Credit Facility. Staff regrets the recent signing of a loan on non-concessional terms, despite the relatively favorable terms of the loan. Staff considers that the waiver is justified by the authorities’ efforts to seek to increase the concessionality of the loan, and their forward-looking commitment to seek new project financing on concessional terms only, to consult with staff ahead of time on external financing issues, and to strengthen debt management. Although Haiti remains at high risk of debt distress, the proposed augmentation under the ECF is essential to support the significant additional balance of payments need.

1. This letter describes the progress made under the PRGF-supported program and requests that the seventh and last disbursement under the arrangement, in the amount of SDR 7.61 million, be made available to Haiti, following the completion of the sixth review. In addition, given the unprecedented damage caused by the recent earthquake and its expected negative impact on Haiti’s external position, we are requesting an immediate augmentation of access under the arrangement of SDR 65.52 million (80 percent of quota). We are also requesting that the full amount of this augmentation be made available immediately, upon completion of the sixth review.

2. Under the current PRGF-supported arrangement, Haiti has implemented macroeconomic and financial policies that have helped stabilize the economy and restore growth, despite successive shocks and the adverse impact of the global slowdown. However, standards of living are improving very slowly; and growth is insufficient to make significant inroads into poverty reduction. Progress with essential structural reforms allowed for the delivery of HIPC/MDRI debt relief in June 2009. Nonetheless, Haiti’s institutional and physical infrastructure needs further development, the economy is highly vulnerable to changes in climatic conditions and commodity prices, and, with low domestic revenues, growth prospects heavily depend on external concessional support and private investment.

3. On January 12, 2010, Haiti was struck by a 7.0 magnitude earthquake, the worst disaster in over 200 years. The capital city and surrounding areas, home to more than one third of the country’s population and key economic and government infrastructure, were the most affected. Surrounding cities were also destroyed. Damages to the transport and production infrastructures are expected to severely cripple exports and hold back economic growth. Pending a more comprehensive assessment of the losses and reconstruction needs, the United Nations estimate the immediate financing requirements to address the emergency at US$562 million, about half of which is needed in the form of food assistance. All indications are that the damage caused by the earthquake is far worse than that associated with the 2008 hurricanes, which destroyed 15 percent of GDP.

4. Overall performance for the sixth and last PRGF review was satisfactory. All quantitative performance criteria evaluated at end-September 2009 have been met, and we have made good progress in implementing structural conditionality–most importantly a new electricity tariff structure aimed at cost recovery. We have recently contracted a loan for the rehabilitation of the Cap Haitian airport that is critical for the development of the north of the country. As a result of protracted negotiations on technical aspects of the loan, global financial conditions led to a decrease in the discount rate used for computation of the concessionality level, lowering the degree of concessionality of the loan to 30.2, short of the 35 percent grant element required by the program. Therefore, we are requesting a waiver for the non-observance of the continuous performance criterion on the contracting of external debt on nonconcessional terms. However, we remain committed to safeguarding debt sustainability by selecting high-quality projects and seeking financing on concessional terms, and have been in discussions with the Inter-American Development Bank (IDB) in order to improve the overall financing terms for this project.

5. The requested additional access under the current Extended Credit Facility arrangement will address the immediate balance-of-payment need associated with the emergency. We have already received additional emergency humanitarian support from our development partners, but much more financial and technical support will be needed to rebuild the country. The additional resources from the Fund will provide a strong signal that will help catalyze support from others. We have also requested assistance in order to rapidly restore basic public financial management functions, so as to ensure full accountability of the funds provided by the IMF and other donors and their effective use.

6. The government is committed to the design and implementation of measures and policies to address the immediate needs resulting from the earthquake and to support the subsequent economic recovery in a manner that restores and maintains macroeconomic stability and financial sustainability, in line with the broad objectives of the program. In developing these measures and policies, we will continue to work in close consultation with the IMF in accordance with the Fund’s policies on such consultations and with the international community, and we have expressed our interest in a successor IMF-supported arrangement.

7. In line with our commitment to transparency in government operations, we agree to the publication of all ECF-related documents circulated to the IMF Executive Board.

Given data limitations and uncertainty as to the economic impact of the earthquake, the analysis in this report is limited to FY 2010, with the exception of the debt sustainability analysis which was prepared on the basis of very preliminary macroeconomic assumptions. The upcoming Article IV report and, request for a new program would seek to address the impact of the earthquake on medium-term prospects.

In the Completion Point DSA, resources in the amount of US$104 million accumulated under the PetroCaribe agreement were treated as private debt, on the understanding that a binational company would be established and therefore assume the associated debt burden. As of September 2009, the binational company had not been set up and new PetroCaribe resources were accumulated. Financing under the PetroCaribe arrangement is provided on concessional terms. Based on the terms currently applicable–1 percent interest, 2 years grace, and 25 years maturity–the associated concessionality element is 44.5 percent. The same terms would apply to projected new flows of US$153 million for FY2010.